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FDI in retail An Unveiled Chimera

Updated: October 13, 2012 11:04 am

In a major reform drive and signalling that it is shrugging its policy paralysis off, the Congress-led UPA government at the Centre pushed through the move last week that would allow 51 per cent foreign direct investment in multi-brand retail. The government notified its decision to allow FDI in multi-brand retail, among others, reflecting its resolve to stick to its reform announcements claiming that it would benefit the farmers. But given the present scenario, will this decision help the farmers? Simply put–No. The reason is that given the rot in the country’s traditional approach, middlemen are bound to emerge even during the regime of the foreign retail giants such as Walmart and Tesco, depriving the farmers of their true claims. If the government feels that middlemen play a major role and the foreign retail giants will directly trade with the farmers and minimise the role of middlemen, then why, on the contrary, does it not think that retail giants can also play the same negative role on Indian farmer’s life? At least in the middlemen strategy, the money is circulating within India but in the case of foreign retail giants, our money will be like profit to the foreigners. Another good reason that the government attribute to its decision is that FDI improves the infrastructure for supply chain and cold chain management. But if the government feels that this is necessary, it should be done by allocating money in the general budget by our government and not by the foreign capital. Against this backdrop, the Prime Minister Manmohan Singh, who was criticised severely by the western media, particularly the US media, for his government’s policy paralysis recently, addressed the country last week–it seems to persuade the Western countries. In his speech, he conveyed immense promises and also tried to undo his government’s policy paralysis, given that the main charge against him is his silence and passivity. What the Prime Minister left unanswered was the key question of why he waited so long to make the eventual hike so steep. It seems that Dr Manmohan Singh is aware that he will not continue as Prime Minister, not only if the Congress is defeated, as generally expected, in a mid-term poll or in the 2014 elections, but also if the Congress wins since in the latter case Rahul Gandhi is certainly going to replace him. He therefore has to re-establish his credentials as a reformer in the short time he will be heading the government. Hence he presented hurriedly economic reform activities. In the process, if the Congress is politically laid low, so be it. He will go down in personal glory and that is what he clearly wants.

                Further, Deputy Chairman of the Planning Commission Montek Singh Ahluwalia said that modern retail was an expanding segment and he did not think FDI in retail was a threat to small retailers. Montek is the same person who said in September 2011 that Rs 32 per day earning was enough for aam-aadmi’s subsistence and based on this criterion a person earning more than Rs 32 per day could not be termed poor. But based on this criterion, more than 50 per cent Indians qualify as BPL (below poverty line). Does Mr Montek think that with Rs 32 earning per day they can shop at Walmart or similiar high-tech retail outlets that the UPA government intends to open up on priority? Why are Mr Montek Singh, Dr Manmohan Singh and the UPA government not referring to the UNDP HDR report of 2011 wherein it was stated in no uncertain terms that this government must change focus of its growth to meet the aspirations of all its people and move up the HDI ranking? Among 187 countries ranked in the UNDP HDR report 2011, India comes in at a dismal 134. Is FDI in retail a priority for the government to move up the HDI ranking? It is noteworthy that the retail industry in India is of late often being hailed as one of the sunrise sectors in the economy. It has made India the cause of a good deal of excitement and the cynosure of many foreign eyes. With a contribution of 14 per cent to the national GDP and employing 7 per cent of the total workforce (only agriculture employs more) in the country, the retail industry is definitely one of the pillars of the Indian economy. But FDI in multi-brand retail has stoked fears not only of unemployment but also of creation of monopolies in the food sector. In this background, the UPA government’s decision will toll the death knell for small retail stores across the country. Also the government has failed to consider the long-term extraneous costs that would supersede other advantages. Though refrigeration, supply chain management and better transportation will reduce costs, this is not enough. The onus will be on farmers to increase yields per acre, which will entail the use of more powerful pesticides, herbicides and fertilizers. Hence, the ‘farmer-will-benefit’ propaganda is not true as it did not happen in the West. It seems that the decision of allowing 51 per cent FDI in retail seems more ‘skewed’ towards favouring MNCs than appeasing Indian citizens. Once again, UPA government’s policy initiatives in the name of growth and development are short-sighted, knee-jerk reactions, without adequate study and thought.

Deepak Kumar Rath

Deepak Kumar Rath

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